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"Save the Queen, which had promised Universal City-style development, clashes with city.
By Kristopher Hanson STAFF WRITER
A powerhouse investment firm has reportedly backed out of a tentative $49 million deal to purchase the Queen Mary lease and develop property around the historic oceanliner.
The deal would have allowed a group calling itself Save the Queen LLC to take control of the ship and surrounding waterfront property for development into a theme resort.
In a July 10 letter to an attorney representing Long Beach, Save the Queen said it was ending its bid because of what it characterized as the city's refusal to reach an agreement on key monetary issues.
Save the Queen is backed by Orange County real estate investor Jeffrey Klein, investment firm The Carlyle Group and resort developer Hix Rubenstein.
"As a result of the city's failure to accept the proposal the city had indicated it required, Carlyle decided not to proceed with the transaction," attorney Mark Shinderman wrote to city-hired attorney Steven Gubner.
In response to the letter, the city issued a tersely worded reply to Save the Queen's backers Wednesday accusing the group of leaking confidential details about the proposed deal.
"We will no longer be negotiating with Carlyle because of what we believe is their clear violation of a court-ordered confidentiality agreement," Long Beach City Attorney Bob Shannon said Thursday. "We also don't agree with their characterization of the negotiations in the letter."
Shannon also indicated the city is considering legal action for what he described as a breach of confidentiality.
The city has been working to court a new developer for the 55-acre site since Queen Seaport Development Inc., which leases the site, entered bankruptcy in March 2005 following a dispute over rent payments to the city.
Long Beach owns the Queen Mary, but signed a 66-year lease with QSDI for maintenance and development several years ago.
Following the bankruptcy filing, a court-appointed trustee, Howard Ehrenberg, was put in charge of resolving QSDI's outstanding debts and finding new investors for the site.
Klein, who heads Save the Queen, said earlier that his team envisioned the project as a resort with hotels, a marina and bay club in addition to a mixed-used development similar to Universal Studios City Walk.
He also said developers were prepared to spend $22 million refurbishing the art deco ship - with $5 million provided immediately - and build the infrastructure needed to make the site more accessible to downtown Long Beach.
During negotiations, Klein's group offered to pay the city $5 million to cover QSDI's back rent, according to the letter from Shinderman, but the city sought an additional "subordinate claim" of $4.1 million up front.
Typically, such claims are paid only after all other creditors receive their payments.
The city disputes the financial point listed in the letter and said it was still confident the Queen Mary site will be a success.
"Regardless of this, we remain confident that we'll be successful in getting the maximum amount of money for the taxpayers for this property and it will be a quality development," Shannon said.
The war of words comes as the bankruptcy case nears its 29th month. Earlier this year, disputing parties decided to hold an auction-style sale Aug. 14, with the property lease going to the highest bidder.
A low bid of $41 million was set, with the next highest bid required to be at least $43 million. From there, bids increase in $500,000 increments, said Deputy City Attorney Charles Parkin.
Save the Queen indicated in its letter it may still participate in the auction.
Following the auction's completion, the winning bidder will be given 30 days to provide financial information and project details to the city.
Any eventual construction requires city and state approval, as both share jurisdiction over the property. "